중앙데일리

Industry leaders worry about 2019 economy

Jan 01,2019

From left: Huh Chang-soo, Sohn Kyung-shik, Park Yong-maan

A number of key figures are warning that the Korean economy is in danger this year, and they say the key is regulatory reform.

The heads of major economic organizations, including the Federation of Korean Industries (FKI), the Korea Employers Federation (KEF) and the Korea Chamber of Commerce & Industry (KCCI), are making their concerns known.

“It is highly possible that the conditions in our major industries, like automobiles and steel, will be difficult.” Huh Chang-soo, chairman of FKI, said. He rarely comments publicly.

“The most painful part is that we do not have a distinct new growth engine industry that can lead our economy,” he continued. “Regulation should no longer be a burden for Korean companies who compete with foreign companies. Regulatory reform is not an option, but is a matter of survival.”

KEF chairman Sohn Kyung-shik said that he will remain alert in order to analyze the problems related to regulation.

“As the revision of laws that stunt the growth of the economy is predicted to start quickly, I will represent the companies to encourage them to make bold investments and undertake bold business activities.”

KCCI chairman Park Yong-maan said: “The reason why start-ups from Silicon Valley become global is because the institutions and the market ecosystem support the creation of new opportunities.”

“We should also boldly change the laws and institutions, including regulatory systems, so that the companies can produce efficiently,” he added.

A dark cloud is expected over the Korean economy this year. The outlook for both domestic demand and exports is dim.

The Business Survey Index (BSI), based on responses of 600 companies, is reading 92.7 for January this year. If the BSI index is below 100, it means that the number of companies offering a negative response is higher than those that gave a positive one.

Despite the trade war between the United States and China losing steam, the export outlook in the BSI is negative, at 92.1. Other BSI sub-indices, such as domestic demand (93.5), investment (95.9), employment (99.7) and profitability (98.1), all suggest a challenging 2019.

Expectations of development in the new year are low due to weakness in both the domestic economy and the manufacturing-based export industries.

In the survey, computer programing and information services received a 57.1, the lowest amongst all the industries. Rubber, plastic and nonmetallic minerals (73.7) and automobiles, trailer and other delivery devices (83.1) also received low expectation scores.

In terms of the employment outlook, the knowledge and entertainment service industry has a BSI of 90.9. Primary metal and metal working industries were at 87.1.

In December, the BSI was 90.2. It has not broken 100 for 44 months in a row, since hitting 101.3 in April 2015. The outlook for employment was relatively good (100.8).

Song Won-guen, vice president of the Korea Economic Research Institute (KERI) said, “the government has come up with an economic policy to enhance consumption and investment, but it is highly doubtful that it will help the economy recover.”

“As the effect of expanding government spending in the short-term is limited, a long-term policy to change the economic structure is urgently needed,” he added,

Along with the negative prospects for the new year, the outlook is that exports will be weak.

The Korea International Trade Association (KITA), which surveyed 938 domestic exporting firms, generated an export-BSI index of 93.1 for the first quarter in 2019.

Export conditions in steel and nonferrous metals, plastic, home appliances, wireless devices and components are all seen as poor. In particular, the steel and nonferrous metals industry was negatively influenced by quotas in major economies and a decrease in the price due to the expansion of Chinese exports.

Exporting firms noted the increase of raw material prices (16.8 percent), buyer requests for reducing prices (15.7 percent) and the high volatility of the exchange rate (10.5 percent) as the main difficulties of the fourth quarter.

Lee Jin-Hyung, a researcher at the Institute for International Trade, said that “an active response from the government is necessary. What is needed right now is modifying the production network according to major industries to prepare for the expansion of the trade war.”